Psychic distance, innovation, and firm performance

Article


Azar, G. and Drogendijk, R. 2014. Psychic distance, innovation, and firm performance. Management International Review. 54 (5), pp. 581-613. https://doi.org/10.1007/s11575-014-0219-2
TypeArticle
TitlePsychic distance, innovation, and firm performance
AuthorsAzar, G. and Drogendijk, R.
Abstract

Previous research suggests that internationalization improves a firm’s ability to innovate, but the effect of internationalizing into specific target markets or destinations on the innovation ability of firms has not been fully investigated. This study examined whether the psychic distance between target market and home market affects firms’ propensity to innovate. The starting assumption was that perception of a high degree of differences and subsequent environmental uncertainty when expanding into psychically distant markets triggers strategies for interacting and integrating with the market environment. These include producing and adopting innovations to processes and products and to organizational strategy, structure, and administrative procedures to cope with the new environment and overcome uncertainties. These innovations and the associated competitive advantages can improve firm performance. Hypotheses regarding the relationships between psychic distance, innovation, and firm performance were tested here by structural equation modeling using data from 186 export ventures into 23 international markets by Swedish companies. The results indicate that the link between psychic distance and firm performance is mediated by innovation.

KeywordsPsychic distance; Innovation; Internationalization; Firm performance; Uncertainty
PublisherSpringer
JournalManagement International Review
ISSN0938-8249
Electronic1861-8901
Publication dates
Online06 Sep 2014
PrintOct 2014
Publication process dates
Deposited01 Mar 2024
Output statusPublished
Digital Object Identifier (DOI)https://doi.org/10.1007/s11575-014-0219-2
Scopus EID2-s2.0-84907507346
Web of Science identifierWOS:000342224800001
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